Qualified Dividend

Not all dividends are taxed equally. Qualified dividends get preferential tax treatment—taxed at capital gains rates (0%, 15%, or 20%) instead of ordinary income rates (10-37%).

Requirements for Qualified Status:

1. U.S. or Qualified Foreign Corporation: Most major U.S. stocks and large international companies qualify

2. Holding Period: You must hold the stock for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date

Example:

• Ex-dividend date: June 15
• 121-day window: April 16
• August 14
• Must hold for 61+ days within this window

Tax Savings:

Ordinary Dividends: Taxed at your income tax rate (10-37%)

Qualified Dividends:

• 0% rate: Income under $47,025 (single) / $94,050 (married)
• 15% rate: Income $47,026-$518,900 (single) / $94,051-$583,750 (married)
• 20% rate: Income above those thresholds

Example Savings: $10,000 in dividends:

• If ordinary (32% bracket): $3,200 tax
• If qualified (15% rate): $1,500 tax
• Savings: $1,700

Common Qualified Dividend Sources:

• Most S&P 500 stocks
• Dividend-focused ETFs (VYM, SCHD, VIG)
• REITs (usually NOT qualified—ordinary income)

Non-Qualified (Ordinary) Dividends:

• REITs
• Master Limited Partnerships (MLPs)
• Foreign corporations (many)
• Money market funds
• Short-term holdings

How to Check: Look at Form 1099-DIV from your broker:

• Box 1a: Total dividends
• Box 1b: Qualified dividends (subset of Box 1a)

Strategy Implication: Hold dividend stocks in taxable accounts (get preferential rates). Put REITs and bonds in IRAs/401(k)s (avoid high ordinary income tax).

Holding Period Trap: Day traders who buy/sell dividend stocks around ex-dividend dates don't meet the 60-day rule—their dividends are ordinary income.